In re Barrett & Co.
| Decision Date | 21 June 1928 |
| Docket Number | No. 1746.,1746. |
| Parties | In re BARRETT & CO. Claim of RHODES. |
| Court | U.S. District Court — Southern District of Georgia |
Paul T. Chance, of Augusta, Ga., for claimant.
Fleming & Fleming, of Augusta, Ga., for trustee in bankruptcy.
On June 26, 1923, Rhodes filed, in a state court, a petition at law against Barrett & Co., a corporation, alleging that it was in possession of 68 bales of cotton belonging to petitioner, particularly described by marks and weights, of the value of $10,196.83, which had been stored by petitioner with Pilcher & Dillon, warehousemen, and which Pilcher & Dillon had delivered, without petitioner's authority, to Barrett & Co., in payment of obligations due Barrett & Co by Pilcher & Dillon. The prayer was "for the judgment of the court" and for process. On July 30, 1923, Barrett & Co. was adjudged a bankrupt. At the appearance term of the suit, in August, 1923, Barrett & Co. answered, denying liability, and, setting up the pending bankruptcy, prayed a stay of the suit. On September 13, 1923, Rhodes filed a proof of his claim in bankruptcy for $10,196.83, attaching a copy of said petition. No stay of the suit was ordered by the state or bankruptcy court, but no action was taken in it until September 20, 1926, when Rhodes had his case set down for trial, notifying the original counsel for Barrett & Co. and the counsel for the trustee in bankruptcy. These counsel appeared in court, but declined to participate in the trial — counsel for Barrett & Co. claiming to be no longer employed, and counsel for the trustee claiming that the trustee, not being a party, was not interested in the trial and would not be bound by its result; that Rhodes had filed his claim in the bankruptcy court, and that court alone had jurisdiction to pass on its validity.
These counsel having left the court, Rhodes amended his petition by alleging that Barrett & Co., at the time of receiving the cotton, had sold it on the market and appropriated the proceeds, with notice of his title and under an implied contract to pay him the value of the cotton. A verdict was had for the plaintiff, no one contesting it, and a judgment was taken against Barrett & Co. for $10,196.83 and costs. Rhodes then amended his claim in the bankruptcy case by setting up this judgment. The trustee thereupon moved the referee to disallow the claim on grounds going to its merits. On a hearing the referee held that section 63a(5) of the Bankruptcy Act (11 USCA § 103(a) (5), touching the allowance of judgments obtained pending bankruptcy was applicable, and precluded any inquiry into the merits, and he sustained the judgment as a valid claim. The question is as to the conclusiveness in the bankruptcy court of a money judgment against the bankrupt, rendered pending the bankruptcy, after notice to the trustee, but without his participation, when he is not made a party by the trial court, nor directed to defend by the bankruptcy court.
The jurisdiction in bankruptcy is derived from the Constitution of the United States, and is paramount. The Bankruptcy Act (11 USCA), passed in pursuance of the Constitution, is part of the supreme law of the land, superseding principles of general jurisprudence and state statutes, if in conflict with them. The ascertainment of the meaning of the act is therefore all-important. Section 63a deals with provable claims, naming as among such "debts * * * which are (1) a fixed liability as evidenced by a judgment or an instrument in writing, absolutely owing at the time of the filing of the petition against him, * * * and (5) founded upon provable debts reduced to judgments after the filing of the petition and before the consideration of the bankrupt's application for a discharge." In both instances, to allow the judgment as a claim fairly means to treat it as conclusively fixing the existence and the amount of the liability; this being of the very nature of a judgment. As to the judgments first mentioned, those rendered prior to bankruptcy, they are of necessity against the bankrupt alone; but the trustee, being a privy since the judgment, and taking the estate subject to the liabilities against it as they existed at the time of the filing of the petition, is naturally and properly bound by it, unless attackable for collusion. Merely personal judgments against the bankrupt, rendered after the adjudication and after the rights and liabilities of the bankrupt estate have become fixed, the trustee being no party to them, should reasonably not bind the trustee nor the estate.
Since Peck v. Jenness, 7 How. 612, 12 L. Ed. 841, and Eyster v. Gaff, 91 U. S. 521, 23 L. Ed. 403, it has been recognized that the bankruptcy of a person does not, of itself, divest other courts than the bankruptcy court of their jurisdiction. Pending suits to enforce specific liens or to deal with specific property (other than insolvency proceedings) are generally not to be interfered with by the bankruptcy court, unless to have the trustee intervene. A personal suit against the bankrupt is not abated, though it may, if on a provable debt, be temporarily stayed pending bankruptcy. The court does not judicially notice the bankruptcy proceeding, but it must be pleaded and proved. Boynton v. Ball, 121 U. S. 457, 7 S. Ct. 981, 30 L. Ed. 985. If at last a discharge in bankruptcy be granted, but the bankrupt neglects to plead and prove it, a judgment against him for the debt rendered afterwards is valid and binding on him. Dimock v. Revere Copper Co., 117 U. S. 559, 6 S. Ct. 855, 29 L. Ed. 994. But in such personal suits the jurisdiction which the trial court retains after bankruptcy is only what it had before — a jurisdiction over the person of the bankrupt. The jurisdiction over his property and its burdens has passed to the bankruptcy court. Nothing that the bankrupt thereafter does or suffers to be done can affect them. Not the bankrupt, but the trustee, is thenceforth the representative in law of the bankrupt's former business in so far as it may affect the distribution of the estate.
To make a fair and equal distribution of the estate to creditors through the federal courts is a prime object of the Bankruptcy Act. To accomplish it, it is just as important that the claims of the distributees be ascertained by the...
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